Commission Lifts Ban on Hedge Fund Advertising

Wednesday, the SEC voted to lift the ban on hedge fund advertising, as mandated by the JOBS Act. Though hedge funds will be permitted to advertise to the general public, sales of the funds will still be restricted to accredited investors, and the rule requires issuers to take “reasonable steps” to ensure that the sales meet this standard. Commissioner Aguilar voted against the rule, stating “I do not support this action because both the process followed in proposing the amendments and the actual amendments being considered today come at the expense of investors and place investors at greater risk. I am particularly disappointed because this flies in the face of the Commission’s mission and did not have to be the case.”

In addition to adopting rules to lift the advertising ban, the Commission also issued a rule proposal that would require issuers to provide additional information to the SEC. The Commission stated that the proposal would allow the SEC to better monitor the market after the ban was lifted as well as provide additional safeguards as the market changes and new practices develop. While Commissioner Aguilar voted in favor of the proposal, he expressed concern about the Commission’s timing. He stated, “The measures discussed in the accompanying proposal should have been considered as part of the amendments to allow general solicitation. I’m afraid the protections will simply come too late, if they come at all, for many investors. It is reckless to create a known risk today, with just the hope of a speculative remedy tomorrow.” Commissioners Gallagher and Paredes voted against the rule proposal due to concerns that the proposal would restrict capital formation.

The Commission also unanimously adopted rules required by Dodd-Frank that would disqualify felons and other bad actors from participating in certain securities offerings.